Oct 12 (Reuters) - JPMorgan Chase & Co's investment bank set aside less revenue to pay employees last quarter, another sign that Wall Street bonuses are on the decline this year.

The investment bank put aside $2.07 billion for pay in the third quarter, or 32 percent of net revenue excluding a special accounting charge. That's down from 41 percent a year ago.

Typically JPMorgan aims to pay its bankers anywhere from 35 to 40 percent of revenue, but Chief Executive Jamie Dimon said on Friday that he is now targeting the low end of that range.

"As a rule of thumb, I would think about 35 percent being a good number," Dimon said on a conference call with analysts.

He went on to note that the investment bank's low expenses helped it posted a 40 percent pretax profit margin: "That's pretty good. If we can sustain that, I would be a very happy guy in a competitive environment."

The ratio of compensation to revenue is a closely watched metric on Wall Street, particularly in recent quarters as trading and deal-making revenue has come under pressure, and investors have demanded better returns.

New York State Comptroller Thomas DiNapoli said earlier this week that he expects cash bonuses paid to securities industry workers who live in New York City to decline this year, for the second year in a row.

Richard Lipstein, a managing director with the recruiting firm Gilbert Tweed International, said that after months of job cuts across Wall Street, management has a greater ability to cut workers' pay because they cannot find other jobs as easily.

"In the battle between labor and management on Wall Street, management may finally be getting the upper hand," said Lipstein. "If tons of people leave, they'll lose it. But given the environment, it's tough to imagine that they're going to walk out the door unless they feel egregiously underpaid."

So far this year, the bank set aside just $269,703 for the average investment banking employee, versus $289,611 for the first nine months of 2011, a 7 percent drop. That compares with a 16 percent net revenue decline, excluding accounting charges.

Bonus decisions won't be finalized til year-end and JPMorgan, which typically pays less than competitors, is not necessarily an indication of how pay across Wall Street is changing.

The typical rule of thumb for Wall Street firms is a 50 percent compensation ratio and JPMorgan's chief competitors, Goldman Sachs Group Inc and Morgan Stanley , regularly pay out greater portions of revenue in compensation than JPMorgan does. Some smaller firms like Jefferies Inc

and Lazard Ltd often hand out more than 60 percent of revenue to employees. JPMorgan is the first big bank to report earnings.

Goldman, Morgan Stanley, Bank of America Corp and Citigroup Inc will report results next week, giving a fuller picture of what Wall Street bonuses may look like this year.